Updated: Aug 18, 2021
Let's start with an analogy. Assume I would like to have hot water in my home. Hot water would mean showers, doing laundry, and cleaning dishes are more enjoyable. I have never had hot water, so I start by designing a water heating system. I create a fire pit and buy a large pot. I will also need a source of fuel, and I decide to go with wood. Since I want this to be awesome, I find the best wood I can. I build a fire, heat some water, and bask in my ingenuity. However, other people see what I am doing and copy me.
Over time, I realize I am spending a large portion of my income on wood. I decide to go with cheaper wood. After all, wood is wood. I soon discover hardwood was more expensive because it burns hotter, longer, and you need less of it. The savings from cheaper wood are gone because now I need more wood. Undaunted, I research and find... driftwood. It's cheap but also plentiful. And I'm smart, so I cast a wide net across the river to catch all the driftwood I can. Unfortunately, other people see what I am doing and copy me again.
Not willing to forego hot water, I need to cut costs. Wood has become both my most significant source of waste and a sizable expense. I try alternatives. This process continues and continues as I keep searching for cheaper inputs to my water heating system. I buy smaller pots for when I need less hot water, and I keep tweaking to find cheaper ways to produce hot water. Every time I find a solution, someone copies me and creates more problems. Exhausted, I turn to a consultant to help.
In many companies, the same issue happens with employees. A need was identified, and a system developed to fulfill that need. Over time, the system is found to be too expensive, which begins a search for cheaper options. Companies waste a lot of money for employees they fail to utilize. This happens with minimum wage employees and highly paid employees. Most of the time, the system is to blame.
Instead of seeking cheaper inputs, it is better to redesign and optimize the system. The best thing about people is that they usually know how the system can be improved. After all, unlike wood, people come with a mind as a standard feature. Many businesses fail to recognize the fact that good ideas come from all kinds of people. Employees often have ideas on how to improve the systems in which they work. Employees can help build a better system, such as selling hot water to neighbors or even simply sharing. Better systems result in competitive advantages, while cheaper systems reduce the barriers to entry for your competition. The best systems are not cheap or easy to copy. They are expensive, efficient, and highly productive. Why make your business a go-cart when you could make it a Ferrari? Instead of cheaper employees, good managers seek to improve revenues per employee. Stop making it easy for your competition to put you out of business.
Are your employees a poor investment or growing your returns? Are you designing systems that reduce the barriers of entry for your competition or systems that make you unbeatable in the market?